Before the 'Bomb' Hits: Why the Race Is on to Alter Ethereum's Economics

The proposals just keep piling in.

At press time, a total of six ethereum improvement proposals (EIPs) have emerged, each hoping to alter the project's code ahead of an upcoming software update (scheduled for October).

Driving the debate is ethereum's so-called "difficulty bomb," a piece of code locked into the $45 billion platform that makes it so a steadily increasing amount of computing power is needed to mine its blocks and unlock its rewards. As designed, the code would eventually push the blockchain into an "ice age," where no further blocks can be formed – that is, if left untouched.

Originally added to ease a transition in which ethereum would change how participants on its blockchain come to agreement – migrating from bitcoin's pioneering proof-of-work algorithm to an alternative called proof-of-stake – the difficulty bomb is set to reactivate in early 2019.

With no proof-of-stake migration in sight, steps must now be taken to delay the bomb — as well as reconfigure how ether rewards are released so as to ensure incentives are aligned to properly secure the blockchain.

But delaying the bomb brings its own problems.

For one, it will make blocks easier for miners to find, meaning ether rewards (currently at 3 ETH) must be decreased along with the delay to ensure that the cryptocurrency is produced at the same rate.

However, because ethereum lacks a formal agreement on its rewards model — unlike bitcoin, whose code caps its creation at 21 million units — there are differing perspectives on how much supply should be reduced, with many calling for a further reduction (and some for an increase) of the quantity of ether that is distributed to miners.

Further, having such a debate in a decentralized network brings added obstacles.

Users, for example, could vote according to how many coins they own — a popular signaling method, but one that has been criticized as too informal a metric. But miners (the individuals dedicating computing power to the software) aren't guaranteed to support a vote.

It's worth noting that debates concerning ethereum's undefined issuance model, as well as the difficulty bomb, have emerged several times throughout ethereum's three-year history.

As detailed by CoinDesk, it's a difficult topic because when it comes to monetary policy, miners and investors are pitted against each other, each calling for the opposite outcome in many cases.

As Lane Rettig, an ethereum developer, told CoinDesk:

"The postponement of the bomb isn't particularly controversial, but the issuance is controversial. But for that reason the whole thing is controversial, you can't have one without the other."

Speaking in a core developer meeting Friday, the communication officer for ethereum, Hudson Jameson suggested a solution could come from separating the two mechanisms.

In a sense, he wants to settle each debate in isolation, tackling one problem before the other.

"I think decoupling them would help us create priorities, where we have one thing which is an economic and technical change and the other which is a pure technical change that isn't as controversial a thing," Jameson said.

Several developers pushed back against this, though, stating that the two issues are intrinsically bound together and necessitate a combined solution.

Still, several EIPs target the question separately — impacting either the bomb or the reward schedule – while others bind them together.

Currently set to activate in 2019, two proposals seek to remove the difficulty bomb completely: EIP 1240, which simply removes the bomb, and EIP 1276, which seeks to remove bomb and alter ethereum's reward structure, lowering the current issuance of 3 ETH per block to 2 ETH.

Two proposals want to delay the bomb: EIP 1234 and EIP 1227, though each takes a different approach to raising and lowering the issuance total.

A further two proposals simply target the issuance rate: EIP 858 does not impact the difficulty bomb but reduces the reward to 1 ETH, and EIP 1276 wants to change the reward to 2 ETH.

Complicating the discussion is the differing views on how much ethereum users should pay for security (in effect that's how developers see blockchain rewards to begin with).

That's because, while the inflation rate of ether ensures its resistance against attacks — preventing the ability of malicious hash power to overwhelm the network — it's essentially a tax that comes from ETH holders directly, as inflation slowly decreases the value of their ETH over time.

Plans to limit the overall issuance with the upcoming consensus switch to proof-of-stake, an upgrade called Casper, have been under discussion for several years, however, that plan is now in question given the consensus switch is still several years away.

"If you rewind way back two or three years ago when this difficulty bomb was first installed, the plan was we will be on Casper by now, by 2018. If that had happened then the bomb would never have been an issue," Rettig told CoinDesk.

Similarly, the supply schedule has yet to be formalized.

Retting said: "Even with Casper, the issuance schedule, the rewards, the inflation, all that has never been worked out. It has never been finalized, this is called the parameterization of Casper and it's still very much a work in progress."

To complicate matters further, there are developers on complete opposite sides of the difficulty bomb debate.

For instance, several developers argue that the difficulty bomb should remain permanently – even though it was only originally planned to last until Casper took effect.

"It lessens the default effect of inaction being the most attractive option," ethereum core developer Nick Johnson said in the meeting.

Yet, Augur developer Mical Zoltu's proposal (EIP 1240) suggests the complete opposite – the removal of the difficulty bomb altogether. Discussing the proposal on a related forum, Zoltu argued that developers should fight against so-called "planned obsolescence"  – or when software is programmed to become obsolete after a certain time – of the ethereum chain.

"As a consumer, I have been bitten many times by planned obsolescence and now it is a business strategy that I actively try to avoid," Zoltu wrote.

The contention surrounding the difficulty bomb and ETH issuance has also led a group of miners to also speak up about their concerns.

Miners using GPUs, a class of mining hardware that risks being made obsolete due to the emergence of ASICs, are calling for developers to use this opportunity to change ethereum's underlying mining algorithm. According to GPU miners, in the absence of Casper, such a change would restore the blockchain to a more decentralized state.

As Casper developer Danny Ryan said in the developer meeting Friday:

"They need to be talked about at the same time. A lot of people in the community want them to be talked about at the same time."

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(Original source)